Monthly Archives: April 2018

April 16, 2018

Virtual Annual Meetings: Updated “Best Practices”

Like it did back in 2012, Broadridge recently convened a group of 17 different stakeholders to look at the state of virtual annual meetings – both “virtual only” and hybrid. The end product is this set of “Principles & Best Practices for Virtual Annual Meetings.” Like before, the report’s conclusions are not that profound – but can be useful to help guide those considering virtual meetings (and it includes a useful appendix that summarizes each state’s laws governing electronic participation in shareholder meetings).

Shareholder Nominations: A Second Bite at the Apple?

Here’s an excerpt from this Olshan memo (Deason’s complaint is posted in our “Shareholder Nominations” Practice Area):

Now that we are midway into the 2018 proxy season, most deadlines for shareholder submissions of director nominations for upcoming annual meetings have come and gone. Nevertheless, shareholder activists who have missed a nomination deadline for whatever reason should be aware that in certain circumstances they may have a second bite at the apple.

Where a company experiences a material change in circumstances set in motion by its board of directors after the passing of the nomination deadline, the shareholder may have grounds to compel the company to reopen the nomination window if the shareholder can demonstrate that the change in circumstances would have been material to its decision whether or not to nominate directors had it been known at such time. There is already case law in Delaware holding that it is inequitable for directors to refuse to grant a waiver of an advance notice deadline under such circumstances.

In his highly publicized campaign against Xerox, Darwin Deason, the third largest shareholder of Xerox, recently commenced an action in New York State Supreme Court seeking to enjoin Xerox from enforcing its December 11, 2017 nomination deadline based on the Delaware standard on this issue. This Client Alert provides an overview of Deason’s allegations and his legal claim seeking to compel Xerox to reopen the nomination window for him and all shareholders as a matter of New York law. This is a case of first impression in New York and the adoption of the Delaware holding by a New York court would be a major victory for shareholder activists.

However, as a vast majority of corporations are incorporated in Delaware, this Client Alert is also intended to remind shareholder activists who desire to nominate directors after a deadline has passed that material developments triggered by a company’s board that come to light after the deadline may give them grounds to request a waiver of the deadline.

Early Bird Extended to This Friday! Our “Pay Ratio & Proxy Disclosure Conference”

Since so many are scrambling to get internal approval for our discounted rate, we have extended our early bird deadline one week – to this Friday, April 20th! So it’s time to act on this registration information for our popular conferences – “Pay Ratio & Proxy Disclosure Conference” & “Say-on-Pay Workshop: 15th Annual Executive Compensation Conference” – to be held September 25-26 in San Diego and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days.

Among the panels are:

1. The SEC All-Stars: A Frank Conversation
2. Parsing Pay Ratio Disclosures: Year 2
3. Section 162(m) & Tax Reform Changes
4. Pay Ratio: How to Handle PR & Employee Fallout
5. The Investors Speak
6. Navigating ISS & Glass Lewis
7. Proxy Disclosures: The In-House Perspective
8. Clawbacks: What to Do Now
9. Dealing with the Complexities of Perks
10. Disclosure for Shareholder Plan Approval
11. The SEC All-Stars: The Bleeding Edge
12. The Big Kahuna: Your Burning Questions Answered
13. Hot Topics: 50 Practical Nuggets in 60 Minutes

Early Bird Rates – Act by the End of This Friday, April 20th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 20th to take advantage of the 20% discount.

Liz Dunshee

April 13, 2018

Rule 701: An Enforcement Sweep?

Broc recently blogged about last month’s Rule 701 enforcement proceeding against Credit Karma. As he pointed out, Rule 701 enforcement actions are pretty rare, but this “Compliance Week” article suggests that more may be on the way – thanks to an enforcement “sweep” being conducted out of the SEC’s San Francisco regional office. This excerpt says the sweep’s another reminder that private companies aren’t immune from SEC scrutiny:

“They came out pretty loudly in 2016 and said they had concerns that, as private companies grow ever-larger without going public, the SEC Enforcement Division ought to be paying more attention to those companies,” says Michael Dicke, co-chair of law firm Fenwick & West’s securities enforcement group, formally associate regional director for enforcement in the SEC’s San Francisco regional office.

“Everybody needs to understand that just because you are not a public or publicly reporting company you cannot think that the securities laws don’t apply to you. It doesn’t mean that the SEC cannot investigate you.”

Recently the Enforcement Division conducted a “sweep” through its San Francisco office and sent Rule 701 information requests to large pre-IPO companies.

“When they do a sweep, they are not targeting a particular company—and when they ask for information, they usually have a specific reason to ask for it,” Dicke explains.

The article says that the sweep may have been prompted by employee complaints about companies’ failure to provide the disclosures required under Rule 701.

Tax Reform: Earnings Disclosures Aren’t Getting Easier. . .

This “Audit Analytics” blog reports that tax reform’s impact has added complexity to 4th quarter earnings disclosures – and that its effects on earnings will remain a moving target throughout the year:

Although the SEC issued guidance on how companies should explain the Tax Cut and Jobs Act’s impact in their fourth quarter earnings releases, the SEC said companies can use “reasonable estimates” to report charges or benefits now and update those figures later.

From a practical perspective, it means that the numbers may change throughout the year and that we would not understand the full impact of the tax reform until the end of 2018. While the Commission provided a general guideline, certain nuances of the disclosure such as presentation in the non-GAAP section, are out of the scope of the guidance.

In the past few years, aggressive non-GAAP adjustments were criticized more than once for masking significant expenses. Yet, in this case, companies almost have to exclude the one-time tax reform impact from the non-GAAP EPS data during earnings calls to give investors a more-accurate picture of company’s earnings.

The blog notes that 80% of S&P 500 companies adjusted their GAAP EPS for the impact of tax reform. Of those, 72% present the adjustment as a separate line item, while 28% combined it with other tax related items. Audit Analytics says it’s important to differentiate between adjustments related to tax reform & other non-standard tax adjustments, and points out some disclosure practices that it views as potential “red flags.”

Tax Reform: Financial Statement Impact

Tax reform disclosures are challenging because the legislation impacts financial statements in so many ways. Unrepatriated foreign earnings, tax levies, stranded tax effects, valuation allowance and disclosures all need to be addressed in financial reporting. This FEI blog reviews the potential impact of tax reform on each of these matters. Here’s an excerpt addressing stranded tax effects:

The tax effect related to changes in the tax law is always reflected in income tax expense (or benefit) from continuing operations, regardless of where the related tax provision or benefit was previously recorded. For entities that must remeasure for example, their available for sale security deferred tax positions for the new rate change, that may create a mismatch with the remeasured deferred tax position and the contra-AOCI asset or liability embedded in ‘All Other Comprehensive Income.’

Under FASB ASU 2018-02, entities must reclassify the stranded tax effects from AOCI to retained earnings for each period in which the effect of the tax rate change is recorded. The amount of the reclassification would be the difference between (1) the amount initially charged or credited directly to OCI at the previously enacted U.S. federal corporate income tax rate that remains in AOCI, and (2) the amount that would have been charged or credited directly to OCI using the newly enacted 21 percent rate, excluding the effect of any valuation allowance previously charged to income from continuing operations.

John Jenkins

April 12, 2018

ICOs: Is the SAFT a Non-Starter?

We’ve previously blogged about the recent popularity of the “Simple Agreement for Future Tokens” among companies engaging in coin offerings – and noted that questions had been raised about whether it was a viable solution for securities law compliance in token deals. Now, this “Crowdfund Insider” article suggests that Corp Fin may have a problem with the SAFT’s structure.

The issue seems to be whether the structure complies with the requirements of Securities Act CDI 139.01, which relates to registration of convertible securities and says that in the case of securities convertible only at the option of the issuer, the underlying securities must be registered at the time the convertible securities are registered. Here’s an excerpt:

A SAFT sold in a private security sale would give the investor the right to automatically receive tokens once the issuer registers its tokens with the SEC for public sale. Put another way, by using a SAFT an issuer is essentially doing a private pre-sale of its future public securities which is a big no-no in eyes of the SEC.

The above C&DI may not seem readily applicable on its face. However, I am currently working with CERES Coin LLC in connection with its proposed Rule 506(c)/Regulation A+ cryptocurrency offering, and have personally discussed this issue directly with the SEC.

The most important language with respect to the use of SAFTs is the underlined language above. As the SEC sees it, if a SAFT investor will automatically receive tokens in the future when (and if) the tokens are registered, without any other investor involvement, then the tokens need to be registered as of the date the SAFT is sold … period.

This Proskauer blog also suggests that the SAFT structure is under scrutiny by the SEC. Given the SAFT’s apparent popularity, if the concerns reflected in the article represent the Staff’s consensus view, some more formal guidance may be appropriate. Don’t forget our upcoming webcast: “The Latest on ICOs/Token Deals.”

ICOs: Blue Sky Cops Are On the Crypto Beat

This Cleary blog says that it isn’t just the SEC that’s on the prowl for rogue coin deals – the blue sky folks are getting into the game as well.  The blog reports that Massachusetts just made a big splash by putting a halt to 5 offerings that failed to comply with state securities registration requirements.  Here’s the intro:

On March 27, 2018, Massachusetts Secretary of State William Galvin announced that the state had ordered five firms to halt initial coin offerings (“ICOs”) on the grounds that the ICOs constituted unregistered offerings of securities but made no allegations of fraud. These orders follow a growing line of state enforcement actions aimed at ICOs.

This was not Massachusetts’s first foray into regulating ICOs. On January 17, 2018 the state filed a complaint alleging violations of securities and broker-dealer registration requirements against the company Caviar and its founder for an ICO that sought to create a “pooled investment fund with hedged exposure to crypto-assets and real estate debt.”

As the blog suggests, Massachusetts isn’t alone – other states are applying a gimlet eye to coin offerings in their jurisdictions.

It looks like the message regulators are sending about the applicability of the securities laws to token deals is getting across. For instance, this WSJ article says that cryptocurrency firm Coinbase is exploring the possibility of registering as a broker-dealer.

ICOs: Your Wu-Tang Clan Crypto Update

When we last updated you on the Wu-Tang Clan’s cryptocurrency activities, we reported that Ghostface Killah was planning to launch his own $30 million coin offering. We don’t know whether the current regulatory environment has put a damper on that deal – but this “Coindesk” article says that another person connected to the Wu-Tang Clan is launching an ICO of his own:

The son of ODB, the late hip-hop artist and Wu-Tang Clan member who passed away in 2004, is launching a cryptocurrency.

Young Dirty, real name Bar-Son James, is the face of the appropriately named Dirty Coin, a cryptocurrency being produced in partnership between the estate of Ol’ Dirty and Link Media Partners, an entertainment industry firm. Dirty Coin (ticker symbol ODB) will exist as a token on the TAO blockchain network, and is set to be traded on the AltMarket exchange later this year when the coin goes live.

It’s a notable launch, given last year’s spate of celebrity-endorsed ICOs – and the subsequent warning from the U.S. Securities and Exchange Commission that such endorsements may break “anti-touting” laws.

In the case of Dirty Coin, the project is aimed at both serving as a funding base for an upcoming Young Dirty album, as well as a means for fans to access shows and buy merchandise. The coin will be able to be used to purchase merchandise tied to the late rapper as well.

Be sure to check out our “Wu-Tang Clan” Practice Area for the latest developments.

John Jenkins

April 11, 2018

Buybacks & Rule 10b-18: Targeted by Legislation & Investors Exchange

Just days after Senator Tammy Baldwin introduced a bill to repeal Rule 10b-18, the Investors Exchange (known as the “IEX”) filed this rulemaking petition asking the SEC to “modernize” the rule. This all follows years of complaints about the rule (as reflected by this article).

IEX believes that the cost of buybacks is being artificially increased as a result of the current market structure which makes buyback orders seeking to comply with 10b-18’s safe harbor easily identifiable and a source of profits for short-term traders. IEX’s proposed solution is to amend the rule to add an exception that allows buybacks to be executed priced at the midpoint of the national best bid & offer. According to IEX, the exception would allow companies to execute buybacks under the protection of safe harbor at the best prevailing prices with minimal detection by front running short-term traders.

Rule 3-13 Relief from SEC’s Financials Requirements

Loving this EY memo about what the SEC considers when deciding to grant relief from Rule 3-13 of Regulation S-X. As we’ve blogged before, while the SEC Staff has long been able to modify – or – waive disclosure requirements in response to requests to modify what is required for the financials in a SEC filing, the Staff is now more amenable to grant Rule 3-13 requests than it was before. This is part of SEC Chair Clayton’s goal of removing unnecessary barriers to going public, etc.

Last Call for Early Bird Registration! Our “Pay Ratio & Proxy Disclosure Conference”

Time to act on the registration information for our popular conferences – “Pay Ratio & Proxy Disclosure Conference” & “Say-on-Pay Workshop: 15th Annual Executive Compensation Conference” – to be held September 25-26 in San Diego and via Live Nationwide Video Webcast. Here are the agendas – nearly 20 panels over two days.

Among the panels are:

1. The SEC All-Stars: A Frank Conversation
2. Parsing Pay Ratio Disclosures: Year 2
3. Section 162(m) & Tax Reform Changes
4. Pay Ratio: How to Handle PR & Employee Fallout
5. The Investors Speak
6. Navigating ISS & Glass Lewis
7. Proxy Disclosures: The In-House Perspective
8. Clawbacks: What to Do Now
9. Dealing with the Complexities of Perks
10. Disclosure for Shareholder Plan Approval
11. The SEC All-Stars: The Bleeding Edge
12. The Big Kahuna: Your Burning Questions Answered
13. Hot Topics: 50 Practical Nuggets in 60 Minutes

Early Bird Rates – Act by the End of This Friday, April 13th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 13th to take advantage of the 20% discount.

Broc Romanek

April 10, 2018

GAO Report Reviews SEC Actions on Climate Disclosure

In 2010, the SEC issued guidance about climate change disclosures.  The GAO recently issued this report reviewing steps that the SEC has taken since then to clarify climate-related risk disclosure requirements, the SEC’s climate disclosure review process, & the constraints the SEC faces in that process. The report also assessed stakeholder views of climate-related risk disclosures.

The GAO says that the biggest constraint that the SEC faces in reviewing the adequacy of climate-related disclosure is its dependence on self-reporting. Here’s an excerpt:

SEC faces constraints in reviewing climate-related and other disclosures because it primarily relies on information that companies provide. SEC senior staff explained that SEC’s Division of Corporation Finance Staff assess filings for compliance with federal securities laws—which require companies to disclose material risks—but do not have the authority to subpoena additional information from companies. Additionally, companies may report similar climate-related disclosures in different sections of the filings, and climate-related disclosures in some filings contain disclosures using generic language, not tailored to the company, and do not include quantitative metrics.

When companies report climate-related disclosures in varying formats & specificity, Corp Fin reviewers and investors may find it difficult to compare & analyze related disclosures across companies’ filings. The SEC has tools, mechanisms and resources — including internal supervisory controls, regulations & guidance, a two-level filing review process, internal & external data, and staff training and experience — that help SEC staff consistently review filing disclosures, according to SEC documents and staff.

In fairness, the GAO was asked to look into the constraints on the SEC’s disclosure review by Congress – but this conclusion is still kind of goofy. The GAO is essentially saying that the SEC’s ability to review disclosures is constrained by the content of the disclosures that companies provide. Exactly! That’s how this works. . .

The GAO also found that, not surprisingly, companies think they’re doing enough in terms of climate-related risk disclosure. But while some investor groups push for more, the GAO says there’s not a clear consensus on how big a priority this should be.

Enforcement: The SEC Cyber Unit’s First 6 Months (And What’s Next)

Last September, the SEC highlighted its increasing enforcement emphasis on cyber-related threats by announcing the creation of a “Cyber Unit” within the Division of Enforcement.  This Cleary memo reviews the Cyber Unit’s first six months of work & previews coming attractions.  The memo notes that – so far – the unit’s attention has focused on allegedly improper trading involving hacking and cryptocurrency & ICO fraud claims. And it speculates that the next target may be cybersecurity lapses.  Here’s an excerpt:

While it is safe to assume that the Cyber Unit will pursue trading, cryptocurrency, and disclosure cases in the months ahead, there are also signs that the SEC may seek to bring enforcement actions in an area that has been somewhat less publicized — alleged failures to maintain reasonable cybersecurity safeguards. In a October 2017 speech, Avakian identified safeguarding information and ensuring system integrity as another area of “enforcement interest” for the Cyber Unit.

The memo says that the speech pointed to SEC Regulations S-P, SCI and S-ID – which require that covered entities “understand the risks they face & take reasonable steps to address those risks” – including putting “reasonable safeguards in place to address cybersecurity threats.” While noting that no cases involving failure to maintain proper cybersecurity safeguards have been brought as yet, other enforcement proceedings under those rules may provide a roadmap for future actions.

More on “The Mentor Blog”

We continue to post new items daily on our blog – “The Mentor Blog” – for members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:

– Risk Reduction from Sustainability is a Myth?
– White Collar: DOJ Extends FCPA Declinations Policy
– Foreign Affiliates: BEA Survey Forms Issued
– Blockchain: “Read All About It!”
– How ISS Analyzes Proxy Fights

John Jenkins

April 9, 2018

Risk Factors: “Trade War” Disclosures Trending?

This MarketWatch article says that some companies have included the potential impact of a trade war in their Form 10-K “risk factors” disclosure.  The article provides some examples of companies that have flagged the current unpleasantness between the U.S. & China as a potential risk – and suggests that more companies may opt to address the risks of a trade war in future filings.

This Form 10-K (pg. 26) from TravelCenters of America has the most extensive disclosure among the examples cited in the article.  This excerpt provides a summary:

“Any changes in U.S. trade policy could trigger retaliatory actions by affected countries, resulting in ‘trade wars,’ in increased costs for goods imported into the United States, which may reduce customer demand for these products if the parties having to pay those tariffs increase their prices, or in trading partners limiting their trade with the United States,” according to TravelCenters’ filing. “If these consequences are realized, the volume of economic activity in the United States, including trucking freight volume, may be materially reduced. Such a reduction may materially and adversely affect our sales and our business.”

The article cites two other companies – Fossil Group (pg. 27) and Amphenol (pg. 13) – that disclosed the risk of a trade war in their 10-Ks. However, unlike TravelCenters, their disclosures were not broken out under a separate caption. Instead, they were included in a bullet point list of various risks associated with their operations.

Based on a recent Edgar search for 10-Ks referencing “trade war” or “trade wars,” it looks like the approach taken by Fossil Group and Amphenol is more typical – at least so far. I found a total of twelve 10-Ks that contained either of these terms. And only one company – G-III Apparel Group (pg. 30) – broke out the risk of a trade war separately in its 10-K.

While only a dozen companies referenced a trade war in their 10-Ks, there are a couple of things to keep in mind. First, it’s possible that others that others may have addressed the risk using other terminology – e.g. “retaliatory tariffs” – which wouldn’t have been caught by my search. Second, many larger companies would have made their filings before the President fired what may turn out to have been the trade war’s first volley on March 1st.

Enforcement: SEC Targets the Man Who Traded Gretzky

If you’re not a hockey fan, the name Peter Pocklington probably doesn’t mean much to you. But if you are, you’ll always remember him as the man who traded Wayne Gretzky to the Los Angeles Kings. That decision earned Pocklington the undying enmity of many Edmonton Oilers fans and – at least temporarily – the title of “the most hated man in Canada.”

Apparently, the SEC’s not too fond of him either. Last week, the agency announced an enforcement action alleging that Pocklington, a convicted felon, concealed his ownership & control of a company from investors in a private placement.

I’m not an Oilers fan, so I don’t have a dog in this fight – like any good citizen, I simply hope that justice prevails. On the other hand, if this was Art Modell. . .

Warm Remembrances: A Farewell to Fred Cook

Here’s a note from Broc: I’m sad to report that Fred Cook passed away last week. Widely considered “the Dean” of the compensation consulting world, Fred was much more than just a genius. Warm, kind – always with a sparkle in his eye. I was pretty new to the executive pay world when I launched and our annual “Proxy Disclosure Conference” fifteen years ago – but Fred was more than willing to spend time with me and explain the basics. When I last saw him two years ago, he still seemed so young – so eager to share.

Fred always talked truth. And with his vast experience, he could give the proper perspective to what makes sense – and what doesn’t. Take some time to find out for yourself – this speech by Fred that we transcribed in 2005 still can provide numerous valuable learning lessons. We will miss you Fred!

Fred was married for 54 years and raised three daughters. Here’s an excerpt from Fred’s obituary in the NY Times:

Fred had a lifelong passion for the outdoors and physical fitness, completing many marathons without once training on a treadmill, and climbing the 46 High Peaks in New York State’s Adirondack Mountains. He climbed many of those peaks multiple times, in both summer and winter. He particularly loved introducing his family and friends to the Adirondacks he loved so much, with large family reunions, college reunions, hikes to swimming holes, outdoor hot tub soaks, and trips with his granddaughters up some of those same High Peaks. In life as in business, he loved to create traditions and share his passions.

John Jenkins

April 6, 2018

Non-GAAP Measures: A Roadmap for Audit Committees

There’s still room for improvement in the presentation of non-GAAP measures – and the “Center for Audit Quality” is here to help. The CAQ’s “roadmap” is intended to support audit committees’ oversight of non-GAAP reporting – specifically, to make sure that the company’s non-GAAP measures are a balanced representation of company performance. It identifies key discussion topics, clarifies the external auditor’s role, and suggests three best practices:

1. Disclosure Controls: Non-GAAP measures should be subject to robust disclosure controls. Establishing disclosure controls specific to non-GAAP measures could enable companies to mitigate risks and support sound decision making about their reporting. The disclosure controls should be documented and robust enough to facilitate testing of the controls. Roundtable participants emphasized that disclosure controls could drive more consistency and transparency into preparation and presentation of non-GAAP measures.

2. Non-GAAP Policies: Management representatives shared that they have established policies that provide a set of guidelines to follow when preparing and presenting non-GAAP measures. These policies can help in making decisions on the treatment of new transactions or events within non-GAAP measures that the company presents. Also, having policies in place can help promote consistency in the measures that are presented and the way they are calculated. While not all companies have the same policies, participants cited having non-GAAP policies as a valuable tool to ground discussions and decisions related to non-GAAP measures.

3. Audit Committee Disclosure: Few, if any, companies currently disclose their non-GAAP policies. There was no consensus regarding whether disclosure of the company’s non-GAAP policies – or simply disclosing that the company has a non-GAAP policy – would be a good practice. However, given the current regulatory environment and the fact that non-GAAP measures are important to investors and are central to their decision making, there could be benefits to an audit committee voluntarily disclosing that the company has non-GAAP policies (but not necessarily the relevant details of those policies). Such disclosure could demonstrate to investors the importance of this information to the audit committee and that policies are in place to support the metrics being consistent, transparent, and comparable.

The “roadmap” is just the latest resource the CAQ has published on this topic. To learn more about non-GAAP measures – and the audit committee’s role in overseeing them – visit our “Regulation G” Practice Area. Also check out this blog from Cooley’s Cydney Posner.

Meanwhile, check out this MarketWatch article about how PwC faces the largest-ever auditor malpractice damages verdict…

More on Fitbit’s “Unreal” Tender Offer

Last year, Broc blogged about someone filing a fake Schedule TO-C on Fitbit’s Edgar page. The SEC has now announced that the guy behind it was sentenced to two years in prison. Remember, this was for $3k in profit. Crime really doesn’t pay…

Pay Ratio: What the First 1000 Filings Show

Broc recently blogged this on ProxyInsight’s Seth Duppstadt reports that over 1000 proxies with pay ratios have been filed so far – the 4 highest ratios are 2818, 2526, 2483 and 2028. Wonder how those companies will fare with say-on-pay this year?

You will want to see this Pearl Meyer blog entitled “Median Employee Pay Not Quite the Spectacle Anticipated.” Deb Lifshey reports “the average of employees identified at median is nearly $75K, which is larger than many expected.” Here’s another excerpt from Deb’s blog:

Not surprisingly, the highest average median pay, based on data collected thus far, is found within the utility sector at around $151K, with energy ($107K) and real estate ($104K) following a distant second and third. Industries at the lower end of averaged median employee pay are consumer discretionary ($42K), consumer staples ($44K) and industrials ($60K).

Surprisingly, the highest average median pay falls in a middle range of company size by revenue. It is larger for companies with revenues between $1B to $3B, ($82K), as compared to those companies with revenues smaller than $1B or larger than $3B.

Companies with fewer employees also had higher average median pay. Those with under 1,500 employees have an averaged median around $98K, compared to those with over 20,000 employees, where the average median is about $58K.

Also check out the latest from the many pay ratio compilations we have posted in our “Pay Ratio” Practice Area on – including this one from Willis Towers Watson entitled “Comparing Pay Ratios: What the First 200 Filings Show.” Finally, it’s your last chance to obtain a 20% early bird discount on our “Pay Ratio & Proxy Disclosure Conference.” Deadline is next Friday, April 13th…

Liz Dunshee

April 5, 2018

Non-GAAP: Two New “Business Combination” CDIs

Yesterday, Corp Fin issued two new CDIs about non-GAAP financial measures that are used in connection with business combinations. They’re a follow-on to CDI 101.01 – which we blogged about last fall. This Wachtell Lipton memo provides an overview (also see this Cooley blog):

While CDI 101.01 helped address the recent spate of frivolous litigation claiming that projections disclosed to explain the assumptions underlying a financial advisor’s fairness analyses require GAAP reconciliation, plaintiffs’ lawyers subsequently seized on the fact that the CDI did not explicitly clarify whether the GAAP reconciliation requirements apply to projections shared with bidders or the board and opportunistically continued to pursue weak disclosure claims.

The underlying logic of the initial CDI plainly applies to these circumstances too: disclosure of internal forecasts to bidders or the board is not intended to communicate performance expectations to investors, and reconciling them to GAAP is neither useful nor required. Corp Fin has now helpfully confirmed that the same considerations animating the initial CDI extend to these additional factual circumstances.

SEC Impersonators: “This Is What Fraud Sounds Like”

Scammers impersonating the SEC aren’t something new (here’s a blog about one such scam). Yesterday, the SEC issued a warning – along with a one-minute audio recording – about SEC impersonators who are pretending to execute trades in an attempt to dupe people into giving them money or account info. Crazy stuff. Here’s an excerpt:

“The audio recording is what fraud sounds like,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy. “We included the recording in our Investor Alert so investors can hear the lies and high pressure tactics imposters use to cheat potential victims out of their money.”

Transcript: “Conduct of the Annual Meeting”

We’ve posted the transcript for our recent webcast: “Conduct of the Annual Meeting.”

Following up on Broc’s blog about the passing of Julie Yip-Williams, there will be a memorial service for Julie on Saturday, May 5th at 5:30 pm, at St. Ann & Holy Trinity Church (157 Montague St, Brooklyn). In lieu of flowers, her family requests that memorial contributions be made to the “Colorectal Cancer Alliance” in Julie’s name.

Liz Dunshee

April 4, 2018

Allstate’s Novel “Prosperity Report”

This “Prosperity Report” from Allstate looks novel. It’s an 11-page document that is positioned before the proxy statement. The full document is: Prosperity Report, Letter from Independent Directors, Proxy Statement, Financial Report – the whole Allstate story under one hood. The “Prosperity Report” focuses on the company’s long-term goals, purpose & role in society.

The thing feels like “BlackRock Catnip.” It’s basically a human capital sustainability report (which is a priority for BlackRock, as noted in this blog) – and yes, BlackRock is the company’s largest holder. Another way to look at it perhaps is as an innovative expansion of the CEO’s “Letter to Shareholders” that typically kicks off the glossy annual report. Whatever your view, you have to admit that Allstate doesn’t slack on its proxy materials. You might recall Broc’s blog from last year, claiming that their proxy statement was one of the best…

Transcript: “The SEC’s New Cybersecurity Guidance”

We’ve posted the transcript for our recent popular webcast: “The SEC’s New Cybersecurity Guidance.”

Last Call for Early Bird Registration! Our “Pay Ratio & Proxy Disclosure Conference”

Time to act on the registration information for our popular conferences – “Pay Ratio & Proxy Disclosure Conference” & “Say-on-Pay Workshop: 15th Annual Executive Compensation Conference” – to be held September 25-26 in San Diego and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days.

Early Bird Rates – Act by April 13th: Huge changes are afoot for executive compensation practices with pay ratio disclosures on the horizon. We are doing our part to help you address all these changes – and avoid costly pitfalls – by offering a special early bird discount rate to help you attend these critical conferences (both of the Conferences are bundled together with a single price). So register by April 13th to take advantage of the 20% discount.

Liz Dunshee

April 3, 2018

ISS Updates 15 Policy FAQs

Oddly late for the proxy season, ISS updated its “FAQs on US Voting Procedures” late last week (changes are highlighted in yellow). In comparison, these FAQs were updated last proxy season in late February (arguably also late for those grappling with the proxy season). As noted in this Steve Quinlivan blog, the updates relate to:

– When are ISS’s proxy reports issued?
– How and when will ISS change a vote recommendation in a proxy alert?
– How can a company request engagement with the U.S. research analysts?
– When is the best time to request an engagement?
– What topics are generally discussed in engagements regarding non-contentious meetings?
– Is there a blackout period for engagement with research?
– What exceptions to the attendance policy apply in the case of a newly-appointed director?
– Proxy access proposals: How will ISS evaluate a Board’s implementation of proxy access in response to a majority-supported shareholder proposal?
– How will ISS apply the new 2018 policy whose previously-grandfathered poison pills will be expiring shortly?
– How do companies terminate poison pills prior to the expiration date?
– Does ISS still consider deadhand or slowhand provisions problematic?
– What if a company adopts a poison before the company goes public?
– Removal of Shareholder Discretion on Classified Boards
– Which types of charter/bylaw adoptions are likely to result in continued adverse voting recommendations?
– What is the purpose of the Governance Failures Policy?

Congress Boosts Edgar Funding – SEC May Move HQ

Over the past year, Broc has blogged repeatedly about the importance of Edgar – and its ongoing problems. So we had our fingers crossed when the SEC’s proposed budget for fiscal 2019 included requests for technology modernization & cybersecurity.

And now, the omnibus spending bill that’s supposed to fund the government for the balance of fiscal 2018 increases the SEC’s funding for IT initiatives by a cool $45 million (see pg. 231). There’s also $244 million available to relocate the SEC’s headquarters – a notion that has been floating around for a few years (see this blog) and that the GSA started more seriously pursuing last year.

What’s not in the budget? Well, page 240 says the SEC is prohibited from using funds to finalize, issue or implement any corporate political contributions disclosure requirement (something that’s been stipulated in the past few budget bills). And as far as I can tell, the budget doesn’t permanently rescind the SEC’s Dodd-Frank reserve fund – an idea that was discussed last year. Overall, the SEC’s $1.6 billion budget has remained essentially flat since 2016.

Dodd-Frank Reform: Hensarling Pressures Senate to Negotiate

Here’s an excerpt of this blog by Steve Quinlivan about the “Crapo bill” that the Senate has already passed:

The future of the bill in the House is uncertain. House Financial Services Committee Chairman Jeb Hensarling (R-TX) is seeking to include a “bucket of bipartisan bills” in the legislation which previously passed the House. In a TV interview, Representative Hensarling said: “We have called on the Senate to negotiate. Otherwise, the bill that the Senate passed – which is sitting on the Speaker’s desk – is going to remain on the Speaker’s desk until and unless the Senate negotiates. We are trying to negotiate in good faith. They have to give us some reason –you know, Maxine Waters voted for roughly half the bills we’re trying to negotiate with the Senate….so somebody needs to explain to me why they can’t accept this legislation.”

Some of the provisions Representative Hensarling is seeking to include are discussed in this Forbes article.

Liz Dunshee